Fundamental reform of finance and power will neutralise controversies over council tax says think tank report

July 4, 2006

A new report from the New Local Government Network think tank proposes a transformation in the relationship between central and local government, driven through a restoration of power to Parliament.



The report, Pacing Lyons: a route map to localism by Dick Sorabji looks at the challenges facing the Lyons Inquiry into Local Government. It advocates reforms including:


  • Abolition of the national target regime and its replacement with a new system using citizens and other local public services to drive improvement.

  • Measures to improve democracy encourage people to stand as councillors and encourage devolution from town halls.

  • Fundamental reform to the funding regime creating autonomy for local government as explained below.



Key funding recommendations:

Local government will have three types of income


  • Council tax reform and denationalised business rate

  • Taxes as Grants (TAGs) a hybrid system giving councils greater independence from central government, but making them more dependent on local citizens and the local economy. This is achieved through:


    • Tax rates set centrally

    • Local revenue retained locally


  • Two new simple central government grants delivering:

    • equality between localities

    • driving performance


Tax rates will not be variable and will still be set by the Treasury.



Current expenditure on local government will not increase (see Funding local government box below).



Full Details:



1. Council Tax:



  • Council tax should be retained but should be re-valued every five years. Legislation should require automatic revaluation every five years.

  • Council tax capping should be abolished.

  • Bands A to H for the cheapest and the most expensive houses should be split into two new bands.

  • The values at which different bands apply should be varied by region.



2. Business rates:



  • Business rates should be de-nationalised and returned to local authority control.

  • However they should be capped at no higher than the increase in the same local authority’s increase in council tax.

  • The Local Government Association should be required to design its own system of equalisation of business rate income between local authorities.



TAGs: the localised taxes as grants would include:



  • Stamp duty land tax



    The 1% rate of stamp duty land tax on the first band of £60,000 to £150,000 would be retained locally. The 1% rate on the £150,000 to £250,000 would continue to be retained nationally.



  • The 10p rate of Income Tax



    Income tax is buoyant and would provide councils with the autonomy that comes from the potential to achieve long term growth in this income.



    However councils would not have the power to vary the rate and it would still be collected nationally.



  • Flat rate of Fuel duty



    The first 10p of the 50p duty per litre set by the Treasury should be assigned to local government. All duties above the first 10p would still be retained by central government.



    Allocating the first 10p of fuel duty would allow local authorities to make strategic decisions about local transport needs.



  • Vehicle Excise Duty



    Linking council revenues to car ownership provides balance to council policy related to revenues to parking charges. It also connects with councils’ responsibility for road maintenance.



  • Councils should also be empowered to create additional new local taxes if they hold a referendum and gain 55% support or majority support on a turnout of 50% or more.



    Central Government Grant:



  • Equalisation Grant



    Designed solely to ensure that each council starts off with the same chance to meet today’s community needs.



  • Performance Grant

    Central government will be free to design performance grant to meet its national policy goals. Likely to lead to rewards to the most cost-effective councils and penalties for the weakest.



    Funding local government



    Pacing Lyons sets out the basis of local government expenditure under the new funding streams to the nearest £billion can be summarised as follows:





    Local Government Expenditure in England: £100 bn


    Local Government Revenue
    Council Tax £22 bn

    Fees, charges & sales £12 bn

    Local Business Rates £21.4(bn)



    Assigned VED £4.3 bn

    Assigned first 10p from 50p duty on

    A litre of fuel £4 bn

    Assigned 10p rate of Income Tax £5.4 bn

    Assigned Stamp Duty £1bn



    Equalisation Grant £25 bn

    Performance Grant £10 bn



    Total Revenue: £105.1



    The £5.1 billion margin of revenue over expenditure is provided to secure against the fact that these figures have not been fully modelled. A 5.1% margin of safety is likely to be significantly more than is required. We would recommend that if more detailed work reveals that some of this surplus is not required, then central government should seek to progressively reduce the pressure on the total tax revenue required from the Council Tax.





    Contacts:



    James Hulme, Head of Communications: 020 7357 0116



    Dick Sorabji, Head of Policy and author of Pacing Lyons: 020 7015 1385



    Notes for Editors:



    The New Local Government Network (NLGN) is an independent think tank, seeking to transform public services, revitalise local political leadership and empower local communities.



    Pacing Lyons: a route map to localism by Dick Sorabji is published on July 6th.


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